YOUR MONEY: Get well paid soon

Don't let a sudden serious illness rob you of your financial strength. Andrew Geldard surveys the sizable, tax-free cover on offer

It will never happen to you. Or will it? The possibility of being struck down by a life-threatening illness such as a stroke, heart attack or cancer during your working life is higher than you think.About 680,000 people each year suffer from these three conditions alone. However, sophisticated medical techniques have meant that the majority survive and make a full recovery. About 77 per cent of people aged 35-54 who have a heart attack will continue to live for at least another five years. And 65 per cent of women aged 20-40 diagnosed with cancer each year will survive for more than five years.

But how soon they can resume work is another matter - a serious illness may mean a considerable if not permanent period of incapacitation. People are 14 times more likely to be off work because of long-term illness than die prematurely.

Combine this situation with the knowledge that the employer has statutory rights to provide sick pay for only a limited time, together with the fact that benefit provided by the state is likely to amount to a fraction of what you were earning and you have the recipe for financial difficulties.

That is a situation which critical illness (CI) cover is designed to alleviate. It will pay a sizeable, tax-free lump sum on diagnoses of a specific life-threatening medical condition or if the policy-holder becomes disabled and unable to work again.

Unlike life assurance, which supports relatives after the policy-holder's death, CI cover helps the policy-holder. The cash sum provides comfort and reassurance during an uncertain time by enabling the policy-holder to honour financial commitments like the mortgage, pay for specialist medical treatment and equipment while supporting day-to-day needs.

Since its launch in 1986, CI cover has become more predominant and there are now more than 60 companies providing policies which cover, in some cases, more than 30 serious illnesses. Total number of policies are now near the one million mark - still only 2 per cent of the population.

The recent growth area of CI cover has been largely through policies sold as part of a mortgage package. According to Peter Robertson, assistant general manger of Standard Life, a mortgage represents a clear need for protection.

"One problem CI has as a stand-alone product is that many people adopt the attitude 'it won't happen to me' and cannot justify the premium going out of the bank account each month,' says Robertson. "When CI comes as part of a mortgage, they don't mind another small amount being added to the payment as they recognise its role in protecting their most important financial asset against unforeseen illness."

Other significant companies on the market include Legal & General, Swiss Life, Scottish Provident, and Norwich Union. All provide policies which give average cover of pounds 50,000-pounds 60,000 on diagnoses of such conditions as multiple sclerosis, kidney failure, heart disease and even CJD.

Current Legal & General premiums are among the best in the market. A 30-year-old man wanting pounds 50,000 comprehensive C1 cover for 25 years will pay a guaranteed premium of pounds 14.05 per month. Scottish Provident's rate is slightly higher at pounds 19.09.

While most critical illness policies cover more than 30 conditions, the vast majority of claims are usually for heart attacks, cancer or strokes. As a result, policies exist which provide CI protection for just these three major illnesses, such as Abbey Life's Living Assurance Select.

Bryan Fisher of IFA firm Berkeley Financial Planning says: "It's very much a case of choosing whether you want to have third party cover or pay that bit extra to be fully insured against most range of illnesses. Having a policy which only covers the main three illnesses is fine until another one strikes, which is something you can never predict."

While the sale of CI cover with mortgage continues to thrive, as a stand alone product it still has some way to go before becoming as popular a part of our financial planning as pensions and PEPs. The name "critical illness" does provoke negative connotations in many consumers who take health for granted and cannot contemplate the thought that a horrible illness could strike at some stage in their life. But just as you assess the risks of an equity investment going wrong, take time to look at the risk of a sudden serious medical condition playing havoc with your quality of lifen

Scottish Provident 0131 558 2740, Legal & General 0345 125626, Berkeley Financial Planning 01203 555240, Swiss Life 0345 228866.

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